Let’s look at a popular strategy for stopping foreclosure: the Loan Modification (aka “Loan Mod”).

(This post is to help you understand options to avoid foreclosure. This isn’t a service Uplift DFW offers.)

Loan modifications can stop foreclosure by taking care of back payments (called “arrearage”), lowering your monthly payment, or both. This is done by working with your bank to change the terms of your current loan. If successful, you won’t have to move.

Back payments might be added into your principal (the base amount you owe). Example: you owe $90,000 and are behind $8,000—your bank might approve a loan modification changing your principal to $98,000. Or, rarely, your lender could decide to forgive them (i.e. just agreeing you don’t have to pay them).

A loan modification might lower monthly payments by lowering your interest rate, lowering your principal, giving you more time to pay the loan off, or by some combination. If your principal is lowered, the IRS will treat the amount lowered as personal income for you, maybe increasing next year’s income taxes.

Loan modifications need bank approval. You can’t force your lender to approve, and only around 50% get approved. Your bank will look at things like your current income, debt and credit. The better they are, the better your odds.

The Homeownership Preservation Foundation helps people trying to avoid foreclosure. They’re free and can help your odds of getting a loan modification approved. Before you call your bank, call these folks at:

888-995-HOPE (888-995-4673)

38% of approved homeowners still face foreclosure because their loan modification doesn’t lower monthly payments enough to matter. On average, monthly payments are only lowered about $200. Some are more. Some are less.

Loan modifications don’t have closing costs but do have a lot of paperwork. They take months to process and banks usually stop foreclosure when processing loan mods, buying you time. If you want to avoid moving and a few hundred bucks a month would really help, call 888-995-HOPE and then call your bank to apply for a loan modification. Good luck!